Martyn Drake: To get the ripple effect, profit is the one thing you can't ignore

It's not enough that an idea is good or that it does good - it needs to be able to make or save someone money

Martyn Drake
Martyn Drake

In the winter 2015 edition of its Stanford Social Innovation Review, Stanford University included a paper called What’s Your Endgame? You can read the full paper here.

The authors proposed that charities can’t scale their innovations because they’re never able to raise the capital required to expand rapidly.

So the paper proposed four alternative mechanisms to create impact at scale, using the ripple effect rather than through direct growth.

The ripple effect is a powerful concept: the idea that an organisation can create impact far beyond its own footprint. And there’s plenty of evidence that it works.

When brands take a publicly ethical stance, they challenge their competitors to match those convictions or lose their ethical customers.

When major manufacturers and retailers sign up to carbon neutrality, gender pay equality or Fairtrade, they can help to raise the bar for the whole industry.

The Stanford article gave four ways in which non-profits could create this ripple effect from their own developments: to put the innovation into the public domain for free; to package it up and train, franchise or certify it for other organisations; to demonstrate profitability and thereby encourage commercial organisations to adopt the model; or to persuade government to drive adoption through policy or legislation.

But the context has changed dramatically in the four years since the article was written, and recent evidence for two of those alternatives is becoming increasingly thin.

Government adoption has arguably never been more difficult to achieve.

Partly that’s because of Brexit distraction across the UK and the brain-drain within the civil service: the descriptions I get from clients are of unprecedented levels of internal chaos and constant musical chairs.

But beyond this there’s the ongoing rise of ideology over rationality that we’re seeing played out in both UK and world politics.

One example would be the world’s first social impact bond, which was set up in Peterborough in 2010 to find ways to reduce reoffending.

By 2015 the programme had beaten all its targets and was therefore immediately cancelled to make way for the national Transforming Rehabilitation programme, which ignored everything Peterborough had learned and spectacularly failed on almost every measure on which the SIB had succeeded.

Government adoption might be possible, but right now success appears to be more a game of roulette than of chess.

In contrast, the open-source movement (giving away your IP) is still thriving, particularly in academia and technology development.

But a good idea is no guarantee of adoption. People tend to resist change, and overcoming the gap between innovation and uptake invariably requires marketing, communication – indeed, "selling" – and those are all activities that an open-source model can generally neither fund nor facilitate.

Plus, people tend to value knowledge in direct proportion to the cost at which it was acquired and therefore continually undervalue "free".

What this means is that if non-profits are to scale their impact in the current climate, there are really only three reliable options: self-scaling, by finding ways to overcome the capital barrier, like social investment; scaling through others by training, certifying or franchising them on a paid-for model; or encouraging commercial adoption.

All three of those options have one thing in common: they all depend on there being a financial benefit. Capital can be raised only if it generates an economic return.

Investments in training, certification or a franchise are similarly predicated: if there’s no return on offer, the uptake will always be poor. And commercial adoption speaks for itself.

The ripple effect can be the biggest single tool for expanding a charity’s impact beyond its own reach. But in order to get those ripples, it’s not enough that an idea is good or that it does good. It needs to be able to make or save someone money. The easier it is to see the money, the faster those ripples will turn into waves of change.

It’s a tricky concept for traditional charities, but to create dramatically greater impact, profit is the essential ingredient that simply can’t be ignored.

Martyn Drake is founder of the management consultancy firm Binley Drake Consulting

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